Why hire a financial advisor who will take around 1% percent of your assets per year when you can get a certificate of deposit (CD) at over 5% with no fee? That alone amounts to a 6% return on your money. One can get a brokerage CD for two years at 5.5%, and with no fee, the return is 6.5%. I will take that any day instead of worrying about what the market is doing and can sleep at night. That’s especially true as a retired person who is not dollar-cost averaging anymore. Prove me wrong.
-Chris
While, at face value, a two-year certificate of deposit (CD) offers a seemingly low-risk, guaranteed return opportunity for savers and investors right now, a strategy that relies solely on CDs is unlikely to meet your needs and objectives.
Here are several points to consider before discounting the value of a successful advisor relationship and pursuing opportunities like CDs alone.
Looking for financial advice? SmartAsset’s free tool can help match you with potential advisors.
Is a CD the Right Choice for Your Goals, Objectives and Needs?
A trusted advisor can work with you to create and follow an asset allocation strategy that provides liquidity and flexibility while managing risk throughout the various stages of your life. A CD represents one tool an advisor may use. But allocating your investments across various investment types is more effective in managing risk.
Consider this: Before 2022, similar questions arose about going all in on S&P 500 index funds instead of working with an advisor. Because economic conditions have changed, that question has given way to one about CDs.
But despite the common tendency to pile into the opportunity du jour, studies have shown that proper asset allocation for your unique personal situation best protects you from over-exposure to any single sector, investment or risk factor in changing environments or at different life stages.
Yes, a retired individual will generally be suited to conservative investments. But retirees still face the risk of outliving their assets. And they need an asset allocation that addresses this. Thinking narrowly with a CD-only strategy could be imprudent when considering longevity risk, unexpected expenses in retirement and rapidly increasing healthcare costs.
The Client-Advisor Relationship Extends Beyond Investments
Advisory fees can represent a worthwhile investment to clients given the comprehensive plan an advisor delivers and manages. This is where an advisor can add significant value. An advisor will approach your life plan holistically, factoring in Social Security, taxes, risk management, estate planning and other aspects of managing your assets.
